Power Ministry Considering Direct Benefit Transfer for Electricity Subsidies

The move will restrict the cross subsidy component in power tariffs


The Ministry of Power is considering changes in the tariff policy that will allow the state governments to provide subsidies to eligible categories of consumers directly into their bank accounts by way of direct benefit transfer. It would enable the state regulatory commissions to determine tariffs without accounting for the subsidy component.

The ministry said that the intention behind the proposed move is to ensure that the cross subsidy surcharge (CSS) component of the tariff does not keep escalating over time to cover for the higher subsidies being provided to retail consumers.

“Any subsidy to be given to any category of consumers shall be given by way of Direct Benefit Transfer directly into the bank account of the consumer or their consumer account with the distribution licensee to be reflected in the electricity bill of the consumer,” the ministry said.

The ministry was responding to a suggestion from parliament’s standing committee on energy. The committee report was tabled during the winter session.

The CSS is usually recovered from industrial consumers and can often be as high as a third of the total tariff, making the domestic industries globally uncompetitive due to high input costs.

Further, the ministry said that the amendment in the Electricity Rules is proposed to make a provision that the surcharge should not exceed 20% of the average cost of supply.

The Committee also recommended streamlining the consumers broadly into five major categories: domestic, agriculture, commercial, industrial, and institutional as a means of uncluttering the complex structure of tariff determination and ushering in transparency into DISCOMs finances.

“Under these broad categories, it is proposed to sub-categorize the consumers on the basis of voltage. The domestic category may have within itself three subcategories: cross-subsidizing, cross-subsidized, and cross-subsidy neutral,” it said in the report.

The ministry said in response that it was aware of the need to simplify and rationalize the tariff structure. It added that it was considering a host of measures in the revised draft Tariff Policy to achieve the objective. These include basing the price of electricity on the cost of supply which primarily depends on the voltage of supply, connected load, and energy consumed.

The proposed changes would do away with prescribing individual category/sub-category for a temporary supply. Such supply may be provided at a fixed multiple of the cost for specific categories.

The ministry is also considering progressively merging existing categories/sub-categories. “In addition, a separate category for EV charging stations may be created, if required,” the ministry said.

The commercial and industrial (C&I) segment has been gradually moving toward procuring renewables, especially solar through open access under captive and group captive modes. The regulations allow exemption of cross subsidy surcharge on such energy consumption besides delivering green energy to the C&I base.

In the July-September, 2022 period, 596 MW of solar open access capacity was installed, a jump of 91% year-on-year as revealed in the Mercom India’s Solar Open Access Market Report Q3 2022.

Further, the state governments are now competing among themselves to attract the C&I sector based on higher exemptions in their green energy policies. Recently, Uttar Pradesh and Odisha released their policies offering concessions on typically high DISCOM charges on wheeling electricity.